American Home Shield 2015 Annual Report Download - page 35

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operating costs, including increases in the minimum wage, environmental regulations related to chemical use, climate change,
equipment efficiency standards, refrigerant production and use and other environmental matters; other consumer protection laws or
regulations; health care coverage; or “do-not-knock,” “do-not-mail,” “do-not-leave” or other marketing regulations. It is difficult to
predict the future impact of the broad and expanding legislative and regulatory requirements affecting our businesses and changes to
such requirements may adversely affect our business, financial position, results of operations and cash flows. In addition, if we were to
fail to comply with any applicable law or regulation, we could be subject to substantial fines or damages, be involved in lawsuits,
enforcement actions and other claims by third parties or governmental authorities, suffer losses to our reputation, suffer the loss of
licenses or incur penalties that may affect how our business is operated, which, in turn, could have a material adverse impact on our
business, financial position, results of operations and cash flows.
Our franchisees, subcontractors, third-party distributors and vendors could take actions that could harm our business.
For each of the years ended December 31, 2015 and 2014, $132 million of our consolidated revenue was received in the form
of franchise revenues. Accordingly, our financial results are dependent in part upon the operational and financial success of our
franchisees. Our franchisees, subcontractors, third-party distributors and vendors are contractually obligated to operate their
businesses in accordance with the standards set forth in our agreements with them. Each franchising brand also provides training and
support to franchisees. However, franchisees, subcontractors, third-party distributors and vendors are independent third parties that we
do not control, and who own, operate and oversee the daily operations of their businesses. As a result, the ultimate success of any
franchise operation rests with the franchisee. If franchisees do not successfully operate their businesses in a manner consistent with
required standards, royalty payments to us will be adversely affected and our brands’ image and reputation could be harmed, which in
turn could adversely impact our business, financial position, results of operations and cash flows. Similarly, if third-party distributors,
subcontractors, vendors and franchisees do not successfully operate their businesses in a manner consistent with required laws,
standards and regulations, we could be subject to claims from regulators or legal claims for the actions or omissions of such
third-party distributors, subcontractors, vendors and franchisees. In addition, our relationship with our franchisees, third-party
distributors, subcontractors and vendors could become strained (including resulting in litigation) as we impose new standards or assert
more rigorous enforcement practices of the existing required standards. These strains in our relationships or claims could have a
material adverse impact on our reputation, business, financial position, results of operations and cash flows.
From time to time, we receive communications from our franchisees regarding complaints, disputes or questions about our
practices and standards in relation to our franchised operations and certain economic terms of our franchise arrangements. If
franchisees or groups representing franchisees were to bring legal proceedings against us, we would vigorously defend against the
claims in any such proceeding, but our reputation, business, financial position, results of operations and cash flows could be materially
adversely impacted and the price of our common stock could decline.
Disruptions or failures in our information technology systems could create liability for us or limit our ability to effectively monitor,
operate and control our operations and adversely impact our reputation, business, financial position, results of operations and
cash flows.
Our information technology systems facilitate our ability to monitor, operate and control our operations. Changes or
modifications to our information technology systems could cause disruption to our operations or cause challenges with respect to our
compliance with laws, regulations or other applicable standards. As the development and implementation of our information
technology systems (including our operating systems) evolve, we may elect to modify, replace or abandon certain technology
initiatives, which could result in write-downs. For example, in February 2014, American Home Shield ceased efforts to deploy a new
operating system that had been intended to improve customer relationship management capabilities and enhance its operations. We
recorded an impairment charge of $47 million in the year ended December 31, 2014 relating to this decision.
Any disruption in our information technology systems, including capacity limitations, instabilities, or failure to operate as
expected, could, depending on the magnitude of the problem, adversely impact our business, financial position, results of operations
and cash flows, including by limiting our capacity to monitor, operate and control our operations effectively. Failures of our
information technology systems could also lead to violations of privacy laws, regulations, trade guidelines or practices related to our
customers and associates. If our disaster recovery plans do not work as anticipated, or if the third-party vendors to which we have
outsourced certain information technology, contact center or other services fail to fulfill their obligations to us, our operations may be
adversely impacted, and any of these circumstances could adversely impact our reputation, business, financial position, results of
operations and cash flows.
Changes in the services we deliver or the products we use could impact our reputation, business, financial position, results of
operations and cash flows and our future plans.
Our financial performance is affected by changes in the services and products we offer our customers. For example, in 2014,
Terminix introduced new products relating to mosquito control, crawlspace encapsulation and wildlife exclusion. There can be no
assurance that our new strategies or product offerings will succeed in increasing revenue and growing profitability. An unsuccessful
execution of new strategies, including the rollout or adjustment of our new services or products or sales and marketing plans, could
cause us to re-evaluate or change our business strategies and could have a material adverse impact on our reputation, business,
financial position, results of operations and cash flows and our future plans.
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